Refrigerator Storage by a Trader is Not “Manufacturing Process” under ESI: “Any process for” and the Cold-Storage Requirement
1) Introduction
Case: MADHU MALTI ENTERPRISES v. THE EMPLOYEES STATE INSURANCE CORPORATION AND ORS.
Court: Bombay High Court (Civil Appellate Jurisdiction), First Appeal No.291 of 2016
Date: 02-02-2026
Judge: Jitendra Jain, J.
The appellant, Madhu Malti Enterprises, is a trader/distributor of medicines. It purchases medicines from pharmaceutical manufacturers and keeps them in a 365-liter refrigerator until sale to chemists/druggists. The Employees’ State Insurance Corporation (ESIC) sought to treat this activity as bringing the premises within the definition of a “factory” under the Employees’ State Insurance Act, 1948 (ESI Act), thereby requiring registration and contribution compliance.
The ESI Court held against the appellant, reasoning that preservation/storage in a refrigerator amounts to “manufacturing process” and that manufacturing “continues” until goods are disposed of by the person in trade. The Bombay High Court admitted the appeal on the substantial question:
“Whether the use of refrigerator for storage of medicines in a refrigerator amounts to continuation of process of manufacturing?”
2) Summary of the Judgment
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The High Court allowed the appeal and answered the substantial question in favour of the appellant.
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It held that mere storage/preservation of medicines by a trader in a refrigerator, without any antecedent or accompanying “process” being carried out on the goods, does not constitute a “manufacturing process” under Section 2(k)(vi) of the Factories Act, 1948 as incorporated into the ESI Act.
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Independently, it held that Section 2(k)(vi) speaks of cold storage, and a 365-liter refrigerator is materially distinct from “cold storage”; thus, on facts, the statutory ingredient was not met.
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The Court rejected the argument that since the ESI Act is beneficial legislation, coverage should be expanded absent satisfaction of statutory conditions.
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The operation of the order was stayed for 8 weeks to enable ESIC to take steps in accordance with law.
3) Analysis
3.1 Statutory Framework and the Court’s Ratio
ESIC coverage (in this appeal) turned on whether the appellant’s premises is a “factory” under Section 2(12) of the ESI Act, which requires (i) threshold employment and (ii) that “in any part of which a manufacturing process is being carried on”.
Section 2(14-AA) of the ESI Act imports the meaning of “manufacturing process” from the Factories Act, 1948. The pivotal provision was:
Factories Act, 1948, Section 2(k)(vi): “manufacturing process” means any process for…
“(vi) preserving or storing any article in cold storage;”
The Court’s core interpretive move is the distinction between:
- “any process for preserving or storing…” (what the statute uses), and
- “the act of preserving or storing…” (what ESIC/ESI Court effectively treated as sufficient).
Ratio (primary): The phrase “any process for” creates a requirement that there be some activity/operation performed on or in relation to the article aimed at preservation/storage; mere passive keeping of already manufactured medicines in a refrigerator by a trader, without any such process, is not “manufacturing process.”
Ratio (additional/independent): Section 2(k)(vi) refers to “cold storage”, which the Court treats as a distinct concept from a domestic/office refrigerator. Since the appellant used a 365-liter refrigerator (not a cold-storage facility), the clause was not satisfied even on that basis.
Important limitation: The Court expressly confined its ruling to the facts of the case and cautioned that it should not be read to mean that in all cold-storage situations there is no “manufacturing process.”
3.2 Precedents Cited (and How They Shaped the Decision)
This Supreme Court decision was used for a focused proposition: merely storing perishable goods under refrigeration, even if scientific examination shows minor changes (e.g., moisture loss), does not necessarily establish that the goods have undergone a “process” (in that statutory context).
The Bombay High Court adopted this reasoning by analogy to emphasize that refrigerated storage alone does not demonstrate that medicines “undergo a process.” Importantly, the Court clarified it was not citing Delhi Cold Storage to say cold storage can never be covered—only to underline the meaning of “process.”
(B) The refrigerator vs. cold storage line: cases expressly noted as accepting the distinction
- Unity Traders Vs. The Regional Director, ESI Corporation
- Mohd. Arif Vs. Employees State Insurance Corporation
- Employees State Insurance Corporation Vs. Sumangalam Restaurant
- The Managment of Kumar Medical Centre Vs. Employees' State Insurance Corporation
The Court treated these decisions as supporting authority for the proposition that “cold storage” is not synonymous with an ordinary refrigerator. This buttressed the Court’s second independent ground: the appellant’s appliance (365-liter refrigerator) did not meet the statutory description of “cold storage.”
(C) Madras High Court decisions relied upon by ESIC
Vellipalayam Co-operative Milk Supply Society Vs. Regional Director, Employees, State Insurance Corporation
The Bombay High Court distinguished this case on scope: it addressed whether an amendment to the Factories Act definition (including preserving/storing) could apply to the ESI Act. In the present appeal, applicability of the amended definition was not in dispute; therefore, Vellipalayam was not determinative.
Kumbakonam Milk Supply Co-operative Society Vs. Regional Director, Employees State Insurance Corporation, Madras
The Bombay High Court noted that while this decision supported ESIC’s broad view, it did not analyze the specific statutory phrase “any process for”—the interpretive hinge in the present judgment. The Court explicitly stated that this omission “makes all the difference,” and it declined to follow the “mere preserving is enough” approach.
(D) The Management of Kumar Medical Centre (Wholesale Pharmaceutical Distributors) V/S Employees State Insurance Corporation Sub-Regional Office / The Managment of Kumar Medical Centre Vs. Employees' State Insurance Corporation
This authority was particularly persuasive because it involved identical business facts (wholesale pharmaceutical distribution) and had considered Kumbakonam Milk before rejecting ESIC’s contention that such storage amounts to manufacturing process. The Bombay High Court used it as reinforcing support for its trader-focused analysis.
(E) Bombay/SC line cited by the appellant on coverage boundaries (noted but not the interpretive fulcrum)
- Ritz Hotel (Vegetarian) Pune V/S Joint Regional Director
- Regional Director Employees State Insurance Corporation V/S Serofie Bernard Vaz
- Hotel New Nalanda V/S Regional Director ESI Corporation
The Court indicated that these decisions supported the appellant’s position, and also observed that it was bound by decisions of its own Court that support the appellant. At the same time, it emphasized that its reasoning ultimately rested on the textual analysis of “any process for” and the cold storage vs refrigerator distinction, rather than merely aligning outcomes.
3.3 Legal Reasoning (Why the Court Reached This Result)
(i) “Process” is a substantive requirement; “for” is purpose-limiting
The Court treated “process” as connoting some activity/operation carried out on or in relation to the goods. While the Factories Act does not define “process,” the Court used ordinary meaning and manufacturing jurisprudence to explain that:
- Processing may occur without producing a new product,
- but “process” still requires some active operation, not mere passive storage.
The Court’s textual focus was the preposition: “process for” (purpose). It reasoned that if the legislature meant to include the mere act of storage itself, it would have used different drafting (the judgment contrasts “for” with “of”).
(ii) Trader activity: no operation on medicines
The appellant was found to be a mere trader: purchasing finished medicines, storing them, and selling them. ESIC did not establish (nor was it its case) that the appellant performed any activity on the medicines prior to storage—such as repacking, reconditioning, grading, adaptation, or any preservation-related treatment. Therefore, the essential ingredient of “process” was missing on the Court’s construction.
(iii) Beneficial legislation cannot override express coverage thresholds
ESIC argued that the ESI Act, being a welfare statute, should be interpreted expansively. The Court accepted the welfare character but held that eligibility/applicability conditions must first be satisfied. A beneficial object does not permit inclusion where the statutory definition is not met.
(iv) “Cold storage” is not any cooling appliance
The Court introduced an additional, practical statutory interpretation: “cold storage” denotes a large, insulated, mechanically cooled facility designed for scientific storage of goods for longer durations and larger volumes. A 365-liter refrigerator is a domestic/office appliance. Thus, even if “process” were assumed, the appellant’s equipment did not satisfy the statutory condition of storage “in cold storage.”
(v) Main activity vs incidental activity
The Court further observed that what should be considered a “manufacturing process” for coverage is the main/dominant activity of the establishment rather than an incidental one. The dominant activity here was trading; refrigeration was incidental to maintaining stock. This reasoning provided an additional support for excluding the appellant from coverage on the facts as pleaded and argued.
3.4 Impact (What This Judgment Changes/Clarifies)
(A) Narrowing automatic ESIC coverage for traders using refrigerators
The decision creates a clear compliance signal: ESIC cannot treat every premises with refrigerated storage as conducting a “manufacturing process” under Section 2(k)(vi) unless it can demonstrate:
- the existence of a “process” (some operational activity) undertaken for preservation/storage, and/or
- storage is in a statutory sense “cold storage”, not merely a refrigerator.
(B) Textual discipline: “any process for” becomes the evidentiary hinge
Future disputes will likely turn on fact-finding: What is the alleged “process”? Who performs it? Is it integral to preservation? This shifts litigation from broad characterizations (“preservation is manufacturing”) to proof of specific operational steps.
(C) Enforcement implications for ESIC inspections
Inspecting officers may need to record concrete facts: repacking/labeling, conditioning, controlled-environment protocols, specialized cold-room infrastructure, and workflow that shows an active process rather than passive storage. Mere presence of a refrigerator is unlikely to suffice in similar trader scenarios.
(D) Doctrinal caution: the judgment is fact-restricted
The Court’s express caveat limits overgeneralization. Establishments operating true cold-storage facilities (or performing preservation-related operations) may still fall within Section 2(k)(vi). The decision therefore delineates—not abolishes—cold-storage related coverage.
4) Complex Concepts Simplified
“Factory” under the ESI Act
A premises is a “factory” for ESI if (among other things) a “manufacturing process” is carried on there. If it is a “factory,” ESI registration and contributions typically follow.
“Manufacturing process” vs “manufacture”
The judgment reiterates a common legal distinction: a “process” may not create a new product, whereas “manufacture” often implies a new commercially distinct product. Even so, a “process” still requires an active operation, not mere storage.
Why “any process for” matters
The statute does not say “storing is manufacturing.” It says “any process for storing/preserving….” The Court treats this as requiring proof of some operational step(s) undertaken with the purpose of preservation/storage.
Cold storage vs refrigerator
“Cold storage” in legal and commercial understanding refers to a dedicated storage facility (larger scale, insulated, engineered for controlled conditions). A refrigerator is a smaller appliance. The Court used this difference to hold that refrigerator storage is not automatically storage “in cold storage.”
Beneficial legislation (welfare statute) interpretation
Welfare statutes are interpreted to advance their purpose, but courts still require the basic statutory entry conditions to be met. The purpose cannot replace the definition.
5) Conclusion
The Bombay High Court’s ruling in MADHU MALTI ENTERPRISES v. THE EMPLOYEES STATE INSURANCE CORPORATION AND ORS. crystallizes a trader-protective principle under the ESI coverage framework:
mere storage of medicines in a refrigerator by a trader—without any “process” being carried out for preservation/storage and without use of “cold storage” as contemplated by Section 2(k)(vi)—does not amount to a “manufacturing process,” and thus does not make the premises a “factory” under Section 2(12) of the ESI Act.
The decision is significant for its disciplined statutory interpretation of “any process for”, its insistence that welfare-object arguments cannot bypass threshold definitional requirements, and its practical differentiation between cold storage facilities and ordinary refrigerators. It will likely shape future ESI disputes by moving the inquiry toward concrete evidence of preservation-related operations and the nature of the storage infrastructure, rather than relying on broad labels of “preservation equals manufacturing.”